‘Cleaning’ Up the Energy Industry: a Look into the Future of Kazakhstan’s Uranium Production

Like many energy exporting countries, Kazakhstan’s economy is being hit hard byplummeting oil prices. The oil supply glut in the global market is forecast to contract the ex-Soviet Republic’s economy by 2.2% this year, as the oil and gas industry accounts for a quarter of the country’s GDP and 60% of its balance of payments. But unlike many oil-producing countries, fossil fuels are not Kazakhstan’s only energy resource. Kazakhstan’s mineral sector portfolio also includes uranium, which is used to power nuclear reactors for clean energy. Home to 12% of the world’s proven uranium reserves, Kazakhstan’s uranium sector currently accounts for 41% of the world’s production, surpassing Canada in 2009 to become the world’s largest uranium producer. Kazakhstan also exports all of the uranium it produces, totaling a value of 1.8 billion USD.

Nuclear power currently generates approximately 11% of the world’s electricity, but this may soon increase because of the global pursuit for clean power. With the Paris climatedeal, China’s announcement to build 6-8 nuclear power plants annually for the next five years, and India’s target of generating 25% of its electricity from nuclear power by 2050, the world will witness a rise in demand for uranium.

As global demand increases for nuclear power in the carbon-limited future, Bank of America-Merrill Lynch forecasts that uranium consumption will rise to 200 million pounds by 2020, up from 150 million pounds in 2015. In effect, BMO Capital estimatesuranium prices to rise to $60 a pound in 2018, a vast increase since the Fukushimadisaster depressed the prices to about $28/pound in 2014.

This ostensibly promising outlook for Kazakhstan’s uranium sector, however, will take some time in practice. There is currently a surplus of produced uranium in the global market. The price of uranium has remained relatively low ($40/pound) since the Fukushima disaster forced the Japanese government to shut down all 52 of the country’s reactors. Since then, consumers have relied on the significant amount of secondary supplies, such as ex-military weapon-grade uranium, to bridge the gap between uranium consumed by reactors and the uranium produced in mines. These secondary supplies, which account for 20% of current global supply, are forecasted to dwindle over time, yet remain substantial in quantity to last the rest of the decade.

This huge inventory overhang guarantees that uranium scarcity is not right around the corner, but the long-term trends of supply and demand may be in favor of prominent uranium producers based in Kazakhstan, such as Kazatomprom. Global uranium production is falling. Many top producers are cutting supply, such as Rio Tinto, whichexpects to produce 50% of its 2010 uranium levels in 2015. In addition, many expensive mining projects are being discarded due to the uranium market’s current conditions. But Kazatomprom’s relatively cheaper costs of mining and good product quality allow the state owned company to retain its production levels, facilitating Kazakhstan’s rise to the dominant uranium producer in the global market.

Kazatomprom is also securing many trade deals with Asian nations in light of the imminent rise in demand for uranium. In July of 2015, Kazatomprom made a deal with India’s Department of Atomic Energy to export 5,000 tons of metric fuel to India between 2015-2019. And a deal between Kazatomprom and China’s Nuclear Energy Industry Corporation guarantees both increased uranium exports to China, Kazakhstan’s biggest trading partner, as well as transit schemes to North America to diversify global supply routes. In other words, with the imminent rise of demand for Kazakhstan’s uranium production, the coinciding rise of uranium prices is not a matter of ‘if,’ but rather ‘when.’

Kazakhstanian Economics

But Kazakhstan’s bright future is clouded by its current economic situation. As the value of the Russia ruble sinks from the devaluation of yuan exacerbating the falling price of oil, Kazakhstan has been forced to free-float its currency, the tenge, to help local industries surmount Russian competitors. In effect, the tenge has lost half of its value to the US dollar, forcing the National Bank of Kazakhstan to increase interest rates to a historic 16% this month. And Western sanctions against Russia are not only lowering Russian demand for Kazakh goods, but also hindering Kazakhstan’s plans for deeper economic integration with Russia in the European Economic Union.

For now, Kazakhstan will have to find other ways to cope with its economic situation. In particular, Kazakhstan is looking to diversify its economy and attract foreign direct investment (FDI) through policy initiatives such as special economic zones, investment subsidies, and tax incentives. “Starting from 2016 investors will interact with authorities on the basis of One-Stop Shop approach. Investors who are applying for licenses and permits in Kazakhstan shall no longer need to visit various ministries or government agencies,” said Kazakhstan’s Deputy Minister of Development and Investment, Rakhim Oshakbayev, referring to recent discussions with Emirati investors.

The arduous path towards diversifying Kazakhstan’s economy may take some time, and the process may not be easy. As long as oil prices remain low in the global market, the near future of Kazakhstan’s economy will remain in question. But the world’s long-term ambitions for a clean energy future may just benefit the struggling country down the road.